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Pricing Decisions and Profitability Analysis

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Jack and Jill Case Study
Pricing Decisions and Profitability Analysis
Students : Salwa Abdulrageeb, Huda Abdulrageeb, Ghada Al Shehri, Ola Shaarawi

Introduction
Jack and Jill developed a new product in the telephonic industry and anticipate that the new product will fill in a gap in the market as it combines new features which will enable the customers to buy one product rather than two. Market research shows a positive response to the product.

Jack and Jill anticipate that it will take the competitors two years to enter the market and imitate their products while the life cycle of the new product is likely to be five years.

Jack and Jill needs advice on setting the price, on pricing strategies and what are the effects of the demand on the pricing levels knowing that they a limited production capacity as they cannot produce more than 500 units per month.

Analysis
Market research reveals that the product will be well received and thus the demand may exceed production capacity that is limited to 500 units per month.

We will consider each of the following pricing strategies:
- Price Skimming:
This strategy involve setting high price to exploit sections of the market that are sensitive to price change (inelastic demand).
Recommendation: not recommended as there are close substitutes in the market and at this stage you have not established your name in the market.
- Price Penetration:
This strategy involve setting a low price to penetrate the market.
Recommendation: not recommended as the low price will stimulate demand on the product when the company have a limited capacity to produce. This could also have two fold bad affects; reputation of the company by not being able to satisfy the demand and image of the product that could be perceived by the customers as a low quality product.
- Middle Pricing:
This strategy involves setting the price in

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